Prescription Drug Importation as a Policy Option to Lower … · Prescription Drug Importation as a Policy Option to Lower the Cost of Medications in the U.S. American College of

Prescription DrugImportation as a Policy

Option to Lower the Cost ofMedications in the U.S.

American College of PhysiciansA Policy Monograph

2005

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Prescription Drug Importation as aPolicy Option to Lower the Cost of

Medications in the U.S.

A Policy Monograph of theAmerican College of Physicians

This paper, written by Rachel Groman, MPH, was developed by the Health andPublic Policy Committee of the American College of Physicians: Jeffrey P.Harris, MD, Chair; David L. Bronson, MD, Co-Chair; CPT Julie Ake, MC,USA; Patricia P. Barry, MD; Molly Cooke, MD; Herbert S. Diamond, MD;Joel S. Levine, MD; Mark E. Mayer, MD; Thomas McGinn, MD; Robert M.McLean, MD; Ashley E. Starkweather, MD; and Frederick E. Turton, MD. It was approved by the Board of Regents on 28 October 2005.

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How to cite this paper:

American College of Physicians. Prescription Drug Importation as a Policy Option toLower the Cost of Medications in the U.S. Philadelphia: American College of Physicians;2005: Policy Monograph. (Available from American College of Physicians, 190 N.Independence Mall West, Philadelphia, PA 19106.)

Copyright (c) 2005 American College of Physicians.

All rights reserved. Individuals may photocopy all or parts of Policy Mongraphs for educational,not-for-profit uses. These papers may not be reproduced for commercial, for-profit use in anyform, by any means (electronic, mechanical, xerographic, or other) or held in any informationstorage or retrieval system without the written permission of the publisher.

For questions about the content of this Policy Monograph, please contact ACP, Division ofGovernmental Affairs and Public Policy, Suite 800, 2011 Pennsylvania Avenue NW,Washington, DC 20006; telephone 202-261-4500. To order copies of this PolicyMonograph, contact ACP Customer Service at 800-523-1546, extension 2600, or 215-351-2600.

Executive Summary

In 2004, four competing proposals to legalize prescription drug importationwere introduced in Congress. Although none were passed, similar proposalshave been reintroduced in 2005. The Medicare Modernization Act (MMA),enacted in 2003, created the U.S. Department of Health and Human Services(HHS) Task Force on Drug Importation and mandated that it report toCongress on the safety of drug importation and included a provision that wouldallow importation of drugs from Canada if the HHS Secretary certifies toCongress that such imports do not threaten the health and safety of theAmerican public and do provide cost savings. However, the Secretary has notcertified such a program.

As the debate continues at the federal level, several states have created pro-grams in defiance of the U.S. Food and Drug Administration (FDA), steeringAmericans to the Web sites of Canadian and European pharmacies that theydeem safe and reliable. In January 2004, the state of Vermont brought suitagainst the Bush administration for failing to write regulations for legal drugimportation, and attorney generals from 18 states requested that the federalgovernment immediately allow states to become licensed wholesalers or allowthem to contract with licensed wholesalers to import medications from Canada.

In light of this recent activity, the American College of Physicians (ACP)feels it is necessary to further develop its position on prescription drug impor-tation. A more comprehensive ACP position on this issue is needed for theCollege to respond to patients’ needs in obtaining affordable prescription drugs.Furthermore, the College will be better prepared to respond to federal pro-posals, which are quickly gaining traction, and state actions, which are alreadyunder way. It is important that ACP continue to educate its members about therisks and benefits associated with drug imports, continue to review newlyreported evidence related to risks and safety, and revise its position on the safetyand effectiveness of drug importation as is necessary. This paper does notattempt to critique the pharmaceutical industry’s pricing practices or dictatehow the industry should be paid.

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Prescription Drug Importation as a Policy Option to Lower the Cost of Medications in the U.S.

BackgroundAlthough the terms are used interchangeably, “importation” typically refers todrugs produced abroad and brought into the United States. “Reimportation”refers to drugs produced in the U.S. and exported for sale abroad, then laterreturned to the U.S. For purposes of this paper, the terms “reimportation” and“importation” are used interchangeably since the proposals currently beforeCongress do not distinguish between the terms in regard to the safeguards thatwould be required before the drugs could be brought back to the U.S.

Federal law strictly regulates the importation of pharmaceuticals throughthe Federal Food, Drug, and Cosmetic (FD&C) Act. Currently, the only typesof legally imported drugs are 1) those that are manufactured in foreign FDA-inspected facilities and the subject of an FDA-approved drug application or 2)those that are U.S.-approved and manufactured in the United States, sentabroad, then re-imported to the U.S. by the manufacturer under proper con-trols and in compliance with FD&C Act requirements. All imported drugs arerequired to meet the same standards as domestic drugs and, thus, cannot beunapproved, misbranded, or adulterated. This prohibition extends to drugsthat are foreign versions of U.S.-approved medications and drugs dispensedwithout a prescription (1).

In the 1980s, two separate policies emerged relating to the importation ofprescription drugs amidst concerns over quality and safety:

• Commercial imports: The Prescription Drug Marketing Act of 1987established today’s “closed system” of distribution, which prohibitsanyone other than the original manufacturer from importing anapproved drug that was manufactured in the U.S. and then shippedoverseas.

• Personal use imports: The FDA exercises its enforcement discretionunder certain circumstances and does not stop individuals with seriousconditions from bringing treatments into the U.S. that are legallyavailable in foreign countries but are not approved in the U.S. (1).This lenient “personal use” policy, which permits individuals to importa 90-day supply of non–FDA-approved prescription drugs, was developedout of concern that certain AIDS treatments were not available in theU.S. (2). The policy was never intended to be a way for patients to purchase lower-priced drugs in foreign countries, although it hasresulted in such.

In 1992, the Prescription Drug User Fee Act was passed to speed up thelengthy review process of new drug applications. As new drugs began to enterthe market quickly, expenditures for drugs in the U.S. began to climb, in partas a result of greater use of newer treatments, which are often more costly thanolder medicines. Meanwhile, drug prices abroad remained low as a result of centralized negotiations. In response to mounting political pressures, concernsover rising drug costs, and growing international price differences, Congresspassed the Medicine Equity and Drug Safety Act of 2000 (the MEDS Act),which created a 5-year program to allow imports by pharmacists and drugwholesalers, although drugs could be imported only from specific countries. Inorder for this to take place, the Secretary of HHS had to certify that importeddrugs posed no additional risk to the public’s health and safety and resulted ina significant reduction in cost. However, neither the Clinton nor the Bushadministration certified the safety of importation, thus preventing importationby wholesalers and pharmacists.

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In 2003, Congress passed the Medicare Modernization Act (MMA), whichincluded an importation provision similar to the MEDS Act. The provision pro-vides authority for pharmacists and wholesalers to import certain drugs fromCanada, subject to certain conditions. It also directs the Secretary of HHS togrant waivers to permit importation of a 90-day supply of any FDA-approvedprescription drug from a licensed Canadian pharmacy for personal use. TheMMA provision differs from the MEDS Act in that it 1) directs the Secretaryto allow imports from Canada only (the MEDS Act had allowed imports froma specific list of industrialized countries, including Canada); 2) codifies the dis-cretion in enforcement that the FDA has exercised to allow the “personal use”imports of prescription drugs; 3) prohibits manufacturers from entering intoagreements to prevent the sale or distribution of imported products; and 4)includes a mechanism, based on evidence, by which the Secretary can terminatethe import program (2). However, similar to the MEDS Act, for any of theseprovisions to take effect, the Secretary of HHS must certify to Congress thatsuch imports do not threaten the health and safety of the American public anddo provide cost savings.

ScopeImported drugs continue to enter the U.S. from all corners of the globe, fromboth developed and developing countries. In 2003, Americans imported $1.4billion in prescription drugs. Of this total, an estimated two million Americanspurchased about 12 million prescription drug products with a value of approx-imately $700 million from Canada (1).

Current Congressional Action

Since 2003, legislation has been introduced to accelerate the legalization of drugimportation. In the 108th Congress, four major proposals were introduced tolegalize the importation of prescription drugs. The House passed one bill, butSenate leadership blocked efforts to hold hearings and floor action on a similarmeasure before the end of the session. In the 109th Congress, three viable drugimportation proposals have been introduced, all of which are similar to the pro-posals considered in the previous Congress. The three bills differ in the numberof countries from which importation would be permitted, the time at whichimportation could begin following enactment, and the extent of measures toensure safety.

Of these four proposals, the Pharmaceutical Market Access and Drug SafetyAct of 2005 (S 334/HR 700), introduced by Senators Dorgan (D-ND) and Snowe(R-ME) in the Senate and Representatives Emerson (R-MO) and Brown (D-OH)in the House, is a leading vehicle for legislative action. Under the bill, pharma-cies and wholesalers could import drugs from FDA-approved pharmacies in 25countries—including Canada, European Union nations, Australia, New Zealand,Japan, and Switzerland—within 1 year of the bill’s enactment. Individuals couldalso buy and import as much as a 90-day supply of prescription drugs for personaluse from registered Canadian pharmacies via mail-order or the Internet. TheDorgan–Snowe bill includes a range of safety features, including:

• Requiring pharmacies and drug wholesalers to register with the FDAand be subject to frequent, random inspections.

• Limiting the number of licensed importers for the first 2 years.

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• Allowing only the importation of FDA-approved medicines with achain of custody that can be traced back to an FDA-inspected manu-facturing plant.

• Requiring that the FDA review notices of foreign versions of the top100 selling domestic FDA-approved drugs to determine whether theyare the same as their U.S. counterparts.

• Allowing the use of anti-counterfeiting technology to identify safe,legal imported medicines.

• Requiring pharmacies and wholesalers to pay fees of as much as 1% ofthe price of the medications to fund the cost of additional federalinspectors and customs agents. These entities also would have to payregistration fees.

• Requiring frequent, random FDA inspection of Canadian pharmacies,including those marketing their drugs via the Internet.

• Requiring that imported drugs be labeled in English and packed intamper-proof packages.

• Establishing standards for Internet pharmacies.

The Dorgan–Snowe bill also includes a non-discrimination provision thatwould make it illegal for drug manufacturers to shut down the supply of pre-scription drugs to certain pharmacists and wholesalers, as they are currentlydoing in Canada. In the previous Congress, the bill had bipartisan support, thebacking of 24 organizations, including American Association of Retired Persons(AARP) and American Federation of Labor–Congress of IndustrialOrganizations (AFL-CIO), and the support of a former FDA commissioner.

The other proposals currently in Congress differ in their safety require-ments. For instance, the Pharmaceutical Market Access Act of 2005 (S 109/HR328), introduced by Senator Vitter (R-LA) and Representative Gutknecht(R-MN), requires less frequent FDA inspections of importers and exportersthan the Dorgan–Snowe bill. It does not limit importation to FDA-approvedproducts or require verification of the chain of custody. Similarly, the SafeIMPORT Act of 2005 (S 184/HR 753), introduced by Senator Gregg (R-NH)and Representative Bradley (R-NH), does not require inspections of commer-cial drug shipments, does not authorize inspection of all entities in the chain ofcustody, does not require FDA inspection of Internet pharmacies, and onlypermits inspection of records if FDA has “reason to believe” that an importeddrug “presents a risk to public health.” The Safe IMPORT Act also does limitimportation to FDA-approved products and would proceed more cautiouslythan the Dorgan–Snowe bill by limiting drug importation only to Canada forthe first 3 years. However, it does not include an analogous, non-discriminationprovision to prevent drug companies from shutting off supplies to pharmaciesthat sell to Americans.

Legislation aimed at more specific aspects of importation has also beenintroduced in Congress this year. For example, the Ryan Haight InternetPharmacy Consumer Protection Act of 2005 (S 399/HR 840), sponsored bySenators Coleman (R-MN) and Feinstein (D-CA) and Representatives Davis(R-VA) and Waxman (D-CA), would strengthen standards governing Internetpharmacies. It would prohibit Internet pharmacies from distributing drugs toconsumers with a prescription solely on the basis of an online questionnaire andwould give state attorneys general the ability to shut down rogue Web sitesnationwide, rather than just in their individual jurisdictions. The Safe OnlineDrug Act of 2005 (HR 1808), introduced by Representatives Walden (R-OR)and Davis (D-FL), would create a uniform certification standard to ensure that

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all U.S.-based Internet pharmacies meet rigorous FDA standards and adhere tostate regulations for operating a pharmacy. At present, safety standards forInternet pharmacies are voluntary.

MMA Study

The MMA mandated that a task force be formed to report to Congress on thesafety of drug importation. The HHS Task Force on Drug Importation,appointed by HHS Secretary Thompson, conducted six “listening sessions”where members heard from consumer advocates, health care purchasers,providers, health care industry representatives, international stakeholders, andthe public.

In December 2004, the HHS Task Force on Drug Importation issued a finalreport, concluding that drug importation would be costly to implement; couldslow research and development of new drugs; and, if not restricted to Canada,could be dangerous to consumers (3). The report also concluded that importationwould provide little savings overall, claiming that while wholesalers—the middlemen in drug importation—stand to gain the most from legalized drugimportation, consumer savings would be modest after taking into account thecost of liability suits.

In a letter accompanying the report, the Secretaries of HHS and the U.S.Department of Commerce outlined the conditions under which the administra-tion would support drug importation. The letter stated that commercial drugimportation should involve high-volume, high-cost prescription drugs from acountry with comparable drug safety standards, noting that Canada is the onlycountry from which importation should be considered at this point. According tothe letter, only commercial importation from licensed foreign wholesalers shouldbe permitted, while personal importation through the mail should be excluded.Other safeguards, such as labeling requirements and inspection procedures, alsowere outlined in the letter (4).

Recent State Action

As constituents become increasingly frustrated with the high cost of drugs andwith Congressional inaction on the issue of importation, more and more pressureis being placed on state and local officials. In 2004, attorney generals from 18states sent a letter requesting that the Secretary of HHS immediately allow statesto become licensed wholesalers or allow them to contract with licensed whole-salers to import medications from Canada. Throughout the year, governors ofIowa, Illinois, Minnesota, New Hampshire, and Wisconsin approached theadministration seeking, at minimum, a waiver to conduct pilot programs to testways to safely import medications. The FDA has remained steadfast in its refusalto consider such arrangements, despite an agreement from the states to allow theFDA to shut down a pilot if any violations were found. In August 2004, Vermontstate officials went so far as to file suit against the FDA when the agency deniedthe state’s request for a waiver to authorize a drug importation pilot project.

The lack of consensus in Congress to address importation has pushed stateand municipalities to enact their own importation programs. In 2004, 28 statesand the District of Columbia considered drug importation measures (5).Minnesota, which currently has the largest government-sponsored program,launched the first Web site in the nation—RxConnect.com—linking residentsto Canadian mail-order pharmacies that meet state established standards ofsafety. Illinois, Wisconsin, Missouri, Kansas, and Vermont have joined together

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under the I-SaveRx.net program, under which states contract with a Canadianpharmacy benefit manager that connects residents with a clearinghouse of 45pharmacies and prescription drug wholesalers in Canada, the United Kingdom,and Ireland. Health insurance plans are required to provide coverage for drugspurchased through the program on the same terms and conditions as prescrip-tion drugs purchased in the U.S. About 1,900 residents enrolled in the programin the first 3 months (6). The state of New Hampshire introduced a Web siteoffering residents information on ordering prescription drugs from Canadianpharmacies, while Boston’s mayor launched a drug importation pilot programfor 14,000 city employees and retirees. Various other locales have launchedsimilar programs, including Springfield, Massachusetts; Montgomery, Alabama;and Montgomery County, Maryland.

In January 2005, Rhode Island’s Department of Health was the first in thenation to file regulations to allow residents to purchase prescription drugs from Canada. The regulations give the Rhode Island Board of Pharmacy theauthority to license Canadian pharmacies in the same manner that it licensesother out-of-state mail-order pharmacies (5). The pharmacies must be licensedby regulators where they are based, and Rhode Island regulators retain the rightto inspect the Canadian locations if necessary. The regulations also specify minimum staffing and safety requirements at the pharmacies. Residents can fillprescriptions from the Canadian pharmacies by using the Internet, telephone, or other methods and receive the medications through the mail or a private delivery service (7).

The FDA has, for the most part, refrained from taking formal action againststates and municipalities that have instituted such programs. Instead, the agencyhas sent letters to those entities advising them of the safety risks associatedwith importing medicines. The FDA has also warned that such programs mayviolate federal law and that states could face tort liability suits and charges ofassisting in criminal activity if individuals suffer injury from these drugs.

In a few cases, however, the federal government has acted with tighterenforcement. In 2003, the U.S. Department of Justice filed a lawsuit on behalf ofthe FDA against two sister companies, Rx Depot Canada LLC and Rx DepotInc., that enabled U.S. residents to purchase lower-cost prescription drugs fromCanada. The government claimed that the storefront pharmacy violated a feder-al law that allows only prescription drug manufacturers to import medications intothe U.S. In December 2004, the FDA obtained an injunction prohibiting thecompany from importing prescription drugs and requiring the company to tell itscustomers that its drug import business violates the law (8). The FDA has alsothreatened to take the state of Illinois to court for initiating its drug import pro-gram, which is increasingly gaining the support and participation of other states.

In response to growing concerns about the adequacy of supply in Canada,given rapidly growing and illegal trade through Canadian Internet pharmacies,many pharmaceutical companies established supply integrity programs. In January2005, Merck & Co., the second largest U.S. drug maker, began shutting off salesto Canadian pharmacies exporting drugs to American patients. Merck became thefourth drug maker to take such a step, joining Pfizer Inc., AstraZeneca PLC, andWyeth. In reaction, consumer groups have filed lawsuits against these pharma-ceutical companies, claiming that they are violating antitrust and consumer-pro-tection laws by reducing supplies to Canadian pharmacies that sell medicines toAmericans. Minnesota’s governor is now considering importation agreementswith countries in Europe and elsewhere because pharmaceutical companiesthreatened to end supplies of their products to Canadian online pharmacies thatsell to Minnesota residents.

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Response of Canadian Officials

In June 2005, the Canadian Health Minister announced that he plans to introducelegislation that would allow for the temporary ban of bulk exports when suppliesare running low at home. He also intends to establish a drug supply network with-in the federal ministry Health Canada and work with provinces and pharmaceu-tical companies to provide more comprehensive data on Canada’s prescriptiondrug supply. The Canadian Health Minister has continually warned that impor-tation by the U.S. is cutting into Canada’s ability to adequately supply medicationsto its citizens. Although no shortage currently exists, Canadian officials are con-cerned that if importation legislation is passed, Americans will flock to Canada anddisrupt the supply chain in this much smaller nation. The Canadian HealthMinister previously suggested establishing a list of prescriptions on which theCanadian government can restrict sales in the event of a shortage. He also has pro-posed a crackdown on online pharmacies that sell prescription drugs to U.S. res-idents and proposed restrictions against Canadian physicians co-signing prescrip-tions for U.S. residents who are not present and have not been examined. Althoughthere is no law against signing foreign prescriptions without seeing the patients,physician regulatory boards in Canada have ethics rules against the practice (9).

Advocacy groups for U.S. seniors have begun to examine proposals to pur-chase prescription drugs from European and Asian nations because of concernsthat the Canadian government might block the sale of lower-cost medications tothe U.S. While supporters maintain that the prescription drug regulatory systemsof European nations are as safe as those in the U.S., others cite the dangers of theEuropean system, which operates under “parallel trade,” where any Europeancountry can import drugs from any other European country.

Private Sector

As drug importation proposals are debated, the private sector continues to evalu-ate and develop strategies to ensure the safe distribution of prescription drugs. In2005, the National Association of Boards of Pharmacy (NABP) launched theVerified Accredited Wholesale Distributors (VAWD) program to accredit whole-sale drug distributors. The program, which includes inspections paid for by thewholesaler, is designed to protect the public by preventing counterfeit drugs fromentering the U.S. drug supply. The VAWD accreditation assures stakeholders thatwholesaler distributors are legitimate, are qualified for state licensure, and areusing security and best practices for safely distributing prescription drugs. The program is similar to the NABP’s Verified Internet Pharmacy Practice Sites(VIPPS) program, which developed a certification process for Internet pharmaciesin 1999. To be VIPPS-certified, a pharmacy must comply with the licensing andinspection requirements of their state and each state to which they dispense phar-maceuticals. Pharmacies must also comply with VIPPS criteria, including patientrights to privacy, authentication and security of prescription orders, adherence toa recognized quality assurance policy, and provision of meaningful consultationbetween patients and pharmacists.

The American Medical Association (AMA) recently endorsed the importationof prescription drugs by wholesalers and pharmacies, provided that the medicationsare FDA-approved and are subject to reliable electronic tracking and that Congressprovides the FDA with the resources and authority to ensure that the supplyis reliable. The AMA continues to oppose individual importation through Internetpharmacies until safety can be guaranteed.


Public Opinion

A recent Kaiser Family Foundation survey found that 73% of Americans thinkCongress should change the law to allow prescription drug importation. Only21% oppose such measures. Sixty-nine percent said legalizing the practicewould make medicines more affordable without sacrificing safety (10). A separatesurvey found that public support for drug importation decreased significantlywhen respondents were asked about specific countries. Respondents were farless likely to support importing medicines from European countries, such asGreece, Portugal, and Spain (40%); European Union members, such as Estonia,Latvia, and Malta (31%); or Asian countries, such as Japan (42%) than theywere medicines from Canada (69%) (11).

Argument for Importation

High Cost of Drugs

Both proponents and opponents of importation have stated that the larger prob-lem at hand is the lack of affordability of prescription drugs. The importation ofdrugs is one of many strategies to reduce drug costs. It is well documented thatAmerican consumers, particularly the elderly and uninsured, often pay more forprescription drugs than do citizens in other countries. Americans pay up to anestimated five times more to fill their prescriptions than consumers in othercountries. American seniors alone will spend $1.8 trillion on pharmaceuticalsover the next 10 years (12).

Critics of the pharmaceutical industry cite that drug companies enjoy higherprofits than any other industry year after year. In 2002, for example, the top 10drug companies in the United States had a median profit margin of 17%, com-pared with only 3.1% for all the other industries on the Fortune 500 list (13).

Importation would not only give Americans access to more affordable prescription drugs but would also increase competition among pharmaceuticalcompanies, which could help drive down the prices of prescription drugs pro-duced in the U.S. An open pharmaceutical market could save American consumers at least $38 billion each year (14).

Achieving Safety

Many prescription drugs that are commonly used by Americans are alreadybeing manufactured abroad. About four in 10 prescription drugs now sold in theU.S. are manufactured abroad, including most cholesterol-lowering medica-tions that are manufactured in Ireland, such as Lipitor (Pfizer Inc.). Accordingto William Hubbard, associate commissioner of the FDA, the agency inspectsthe part of the Irish plant that makes the pills sold in the U.S. (15).

Although a system has been created to ensure safety, these inspections donot always take place due to a lack of resources. The FDA is supposed to inspecteach foreign drug manufacturer at least every other year, but with only about$50 million each year to complete all drug inspections, both domestic and foreign,the agency finds it impossible to fulfill this obligation (15).

Supporters, therefore, continue to advocate for strengthening and expandingthe current regulatory system, including inspections of foreign production plants,licensing of wholesale importers, tracking of shipments from factories to pharma-cies, and the creation of an FDA Web site that lists approved pharmacies that couldsupply U.S. residents with safe prescription drugs from other nations.

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With an estimated two million Americans already importing prescriptiondrugs without any safety mechanisms in place, proponents of importation continue to urge Congress to act to ensure the safety of these individuals.

State Support

Various state officials, including those from Minnesota, Iowa, Vermont, andNorth Dakota, have testified in support of importation. At a February 2005hearing held by the Senate Health, Education, Labor, and Pensions Committee(HELP), Minnesota Governor Pawlenty noted that safety concerns have notbeen a problem for his state’s drug importation program, RxConnect.com.Walgreens and CVS Pharmacy, the top two pharmacy chains in the U.S., havealso expressed support for importation on the condition that a safe channel beestablished.

Canada-Only Approach

Still others defend Canada-only importation proposals by attesting to thesecurity of the Canadian system. The President of Ontario-based CanadaPharm,a mail-order pharmacy that supplies Americans with prescription drugs fromCanada, has noted that Canada’s pharmaceutical approval and regulatory process,regulated through the Therapeutic Products Directorate, is “equally as rigorous”as that of the FDA. He also pointed out that there is more opportunity inside theU.S. than in Canada for “illicit drugs entering the drug distribution system.”Only five prescription drug wholesalers exist in Canada, in contrast to severalhundred in the U.S. Furthermore, medications are dispensed to pharmacies in manufacturer-sealed packages, unlike in the U.S., where wholesalers mayrepackage them (16).

Argument against Importation

Safety Concerns

The most vocal argument against prescription drug importation centers on safety. Opponents fear that foreign drugs may be improperly labeled, stored,and shipped. Concerns have also been raised about the substitution of similarbut not “therapeutically equivalent” products and recall management. Mostserious of all, however, is the increased potential for exploitation by counter-feiters, narcotics traffickers, organized criminals, and terrorists, leading to an increase in altered and counterfeit treatments entering the U.S. andincreased risk for bioterrorism. The FDA, the World Health Organization,and pharmaceutical companies report that counterfeit cases are on the rise.Other studies have documented links between counterfeit products and terrorist organizations, which engage in such activity to finance their opera-tions (5).

In 2003, the FDA and the U.S. Customs and Border Protection conducted aseries of spot examinations of mail shipments of foreign drugs entering the U.S.Of the 1,153 imported drug products examined, the overwhelming majority of thedrugs (88%) were found to be in violation of U.S. federal pharmaceutical safetyor efficacy standards. These drugs came from many countries, including Canada,India, Thailand, and the Philippines. The potentially hazardous medicines foundincluded drugs different from those approved by the FDA, inadequately labeled

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or packaged drugs, drugs withdrawn from the market, animal drugs that are notapproved for human use, drugs with dangerous interactions, drugs that carryrisks requiring initial screening and/or periodic patient monitoring, and con-trolled substances (17).

On 20 May 2004, the Senate HELP Committee held a hearing where FDAAssociate Commissioners Hubbard and Taylor warned of counterfeit medicationsfrom India, Indonesia, and Pakistan, as well as prescription drugs that have thesame chemical analysis as others but do not properly dissolve in the bloodstream.

Finally, the Government Accountability Office (GAO) reported in July 2004that the FDA and U.S. Customs and Border Protection officials were concernedthat the volume of imported, adulterated, misbranded, or unapproved prescrip-tion drugs is large and increasing. The GAO concluded that federal agencies cannot assure American consumers that prescription drugs purchased from inter-national distributors are safe, effective, or high-quality. Another recent GAOreport on drugs purchased from the Internet echoed these concerns.

The Secretaries of HHS for the Clinton and Bush administrations, theFDA, 11 former FDA Commissioners, the U.S. Customs Service, and the DrugEnforcement Administration have all voiced concerns over drug importation.

Weaknesses in the Current System

Those concerned with safety often point to weaknesses in the current system,which must be corrected before drug importation can be made legal. Lack ofresources is a significant contributor to security lapses. The FDA currently hasonly about 100 investigators nationwide to handle the approximately 10 millionparcels coming into the U.S. annually. At the U.S. Post Office Airport MailFacility at JFK Airport, for example, only 1%–2% of the 40,000 packagesreceived daily are inspected As a result, non–FDA-approved medications areentering the U.S. at a rapid pace. Random inspections conducted by the FDAat several mail facilities revealed that 86%–88% of the packages examined contained non–FDA-approved drugs (5).

The current system also lacks a uniform mechanism to track medicine fromthe point of manufacture to the point of sale, such as a chain of custody or“pedigree,” as well as uniform interstate standards to regulate wholesalers anddistributors. Furthermore, Internet pharmacies are not currently regulated,making it difficult to ensure product quality and origin or to ensure that a prescription is required or a physician is employed (5).

The FDA has been particularly vulnerable to criticism following its failureto inspect often enough the long-troubled British vaccine plant owned byChiron, which the U.S. had counted on for half of its flu vaccine supply. Theplant’s entire vaccine supply was impounded last year after British regulators discovered serious problems, which were later confirmed by the FDA.

The President’s fiscal year 2006 budget proposal would reduce funds foralmost all FDA inspection programs, such as those that review overseas plantsthat make prescription drugs bound for the U.S. If Congress approves theseprovisions, the number of foreign drug plant inspections would drop 5.8%compared with estimated 2005 inspections. The only increases are an expansionof a network of labs to analyze food for bioterror agents and increasing staffingin the office that monitors the safety of prescription drugs once they hit themarket (18).

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High Cost of Ensuring Safety and Uncertainty of Savings forConsumers

A 2004 report by HHS found that assuring the safety of imported medicationswould be so costly—hundreds of millions of dollars—that consumers would seea price break of only about 1%. A 2004 analysis by the Congressional BudgetOffice (CBO) similarly concluded that the savings from such a program areexpected to be small, especially in a Canada-only approach (19). Critics also fearthat middlemen, such as wholesalers and Internet pharmacies, will reap most orall of the savings from importing lower-priced pharmaceuticals, rather than passthe savings on to consumers.

Impact on Research and Development

The U.S. continues to lead the world in biotechnology innovation because ournational policies foster innovation. Unlike nations that impose price controls toensure prescription drug affordability, pharmaceutical companies in the U.S. arefree to sell at whatever price they choose. According to manufacturers, thehigh price of drugs in the U.S. is largely a result of the pharmaceutical industrybeing a high-risk business that requires substantial investments in research anddevelopment. Last year, member companies of the Pharmaceutical Research andManufacturers of America (PhRMA) spent more than $33 billion on research anddevelopment. In contrast, all pharmaceutical companies, including those that arenot members of PhRMA, spent $21 billion on total promotion and marketingcombined (20).

Pharmaceutical companies argue that if importation were legalized, theirincentive to invest in research and development would be reduced. The finalreport of the HHS Task Force concluded that legalizing imports would cut drugcompanies’ profits, which pay for research and development, resulting in three orfour fewer new drugs being approved each year (3). Another study estimated thatif importation was approved, national research and development spending bypharmaceutical and biotechnology firms would plummet by $14.8 billion over the next 12 years and 262 life-saving drugs would be abandoned for economic reasons (21). Importation could also erode incentives for providing low-costgenerics.

Disruptions in the Canadian Supply

Still others warn of the adverse effect importation may have on the Canadiansupply. Canada, which fills about 300 million prescriptions annually, lacks theinfrastructure and supply to provide for Americans, who fill 3.1 billion pre-scriptions annually, in addition to its own residents (5). Since Canada’s popula-tion is just a fraction of the size of the U.S., even a small portion of U.S. patientsordering medications from across the border could overwhelm current supplyand distribution systems. The end result would be higher prices and limitedsupplies for Canadian patients. In the event that Canada faces a prescriptiondrug shortage, the nation could declare an emergency and remove patent rightsfor medications. In a worst-case scenario, the Canadian government could banall prescription drug exports to the U.S.

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Liability Concerns

Importation also raises concerns about liability in the event that a patient isharmed by an imported medicine. American pharmaceutical companies, phar-macies, pharmacists, hospitals, and physicians can all be sued and held liable forprescribing and dispensing imported medications that injure patients. Manycomplicated issues related to liability have yet to be resolved, including whowould be at fault (i.e., importer, prescribing physician, dispensing pharmacists,or manufacturer), jurisdiction (e.g., suits might require going to foreign courts),and the role of the patient (e.g., determining patient fault when he or she isaware of the source of the product).

Alternative Ways for Consumers to Access Lower-Cost Drugs

Significant progress has been made over the last few years in both the public andprivate sector to improve patients’ access to affordable medications. The MMAof 2003 includes a comprehensive outpatient prescription drug benefit that willbe available to all Medicare beneficiaries beginning on 1 January 2006. Thisbenefit will provide savings on medications for Medicare beneficiaries, with themost assistance being provided to low-income individuals and those with veryhigh drug expenditures. Forty million Medicare beneficiaries, including approx-imately 12 million without any coverage today, will be able to access affordableand safe medications with protection against high out-of-pocket costs.Approximately 11 million low-income elderly and disabled individuals will payonly minimal co-payments for this coverage.

In addition to the new Medicare benefit, the pharmaceutical industry hastaken steps to improve access to medicines for the uninsured. Eli Lilly created theLilly Cares program, which offers free medication, through physicians, to patientswho are otherwise unable to obtain their products. Eli Lilly also developed theLillyAnswers program to help address concerns about growing medical expensesfor Medicare recipients without prescription drug coverage. For eligible seniors,LillyAnswers provides a 30-day supply of any Lilly retail drug for a flat $12 fee.Pfizer’s Helpful Answers Initiative includes the Pfizer Pfriends program, throughwhich low-income, uninsured families can buy medicines at prices similar tothose paid by large purchasers, as well as the Connection to Care program,through which families making $31,000 or less per year can receive free Pfizermedicines from their physicians’ offices. Novartis and nine other pharmaceuticalcompanies recently launched the Together Rx Access card, a free program, whichprovides low-income uninsured individuals with savings of approximately25%–40% on a wide range of prescription products. Finally, the Partnership forPrescription Assistance (PPA) is another collaborative effort among pharmaceu-tical companies, health care providers, patient advocacy organizations, and com-munity groups to help qualifying patients who lack prescription coverage get themedicines they need. The PPA (www.pparx.org) offers a single point of access tomore than 275 public and private patient assistance programs, including morethan 150 programs offered by pharmaceutical companies.

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Where We StandIn January 2005, the College’s Board of Regents (BOR) voted to modify theCollege’s policy on prescription drug importation. An ACP policy previously“oppose[d] reimportation until safety concerns raised by HHS and the FDAwere resolved.” The new policy states that “ACP supports legislative and/orregulatory measures to develop a process to ascertain and certify the safety ofreimported prescription drugs.” The position was amended to allow the Collegeto be more responsive to patients suffering from the high cost of prescriptiondrugs without criticizing the pharmaceutical industry’s pricing practices or dictating how the industry should be paid.

Although this modified policy allows the College to respond more pro-actively, its lack of specificity makes it an inadequate tool to evaluate andrespond to quickly evolving importation proposals and actions at the federal andstate level. The following recommendations, based on the arguments presentedin this paper, will better guide the College in evaluating proposals on the issueof prescription drug importation:

Recommendation 1: Action is needed, including consideration of drugimportation, to reduce the high cost of prescription drugs in the United States.However, assuring high quality and patient safety must remain the top priority ofany cost control program.

Recommendation 2: Before legalizing the importation of prescriptiondrugs, Congress should:

• Permit state pilot programs to test the safe implementation of pre-scription drug importation programs. Trials could initially be aimed atindividuals without drug coverage. The results of such pilots shouldserve as a model for the federal government and individual states.

• Create an independent FDA oversight board to handle drug safetyissues, including those related to prescription drug importation, and tocommunicate more effectively with patients and physicians about therisks and benefits of such medications.

• Study and report on the effectiveness of promising new and emerginganti-counterfeiting technologies, such as radio frequency chips to trackdrug shipments. Nevertheless, it should be recognized that widespreadadoption of authentication technologies is a daunting task that couldraise the cost of imported drugs, thereby reducing any expected savingsfrom importation.

• Urge the expansion of accreditation programs. In particular, ACPurges the NABP to consider applying its Internet pharmacy accredi-tation program on an international level to help consumers identifylegitimate Internet pharmacies.

• Enhance resources of the FDA to inspect facilities manufacturing prescription drugs for export to the U.S. and enhance resources of theFDA, the U.S. Customs Service, law enforcement agencies, and otherfederal agencies involved in assuring that products that are illegal, arecounterfeit, or do not meet U.S. safety and quality standards are notallowed into the U.S.

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Recommendation 3: ACP believes that any drug importation system thatCongress approves should:

• Be a closed system, in which participating pharmacies and Internetsites must meet FDA standards;

• Have a tightly controlled and documented supply chain;• Not include controlled substances, biologics, or products that are

infused/injected or products that are photoreactive or have strict temperature requirements;

• Be limited to countries that meet U.S. standards to assure high qualityand patient safety of imported drugs;

• Include adequate resources for inspections of facilities and enforce-ment of U.S. requirements; and

• Require that only prescriptions written by a U.S.-licensed physicianwith an established professional relationship with the patient be acceptedfor importation.

Recommendation 4: Prescription drug importation is not a long-termsolution to the high cost of prescription drugs, which is having a detrimentaleffect on Americans’ access to life-saving therapies. ACP urges the federal government to take immediate action to improve access to pharmaceuticals by:

• Assuring there are sufficient incentives for pharmaceutical researchand development;

• Encouraging increased competition among brand-name manufacturers;• Speeding the approval and encouraging the use of generic drugs;• Negotiating volume discounts on prescription drug prices and pursuing

prescription drug bulk purchasing agreements under the Medicareprogram;

• Expanding the availability of public and private sector health insurancethat includes coverage for prescription drugs;

• Encouraging pharmaceutical manufacturers to expand their patientassistance and drug discount programs and increase patient educationfor these programs;

• Protecting state pharmaceutical programs that may be impacted by thenew Medicare law;

• Reviewing recent increases in the cost of pharmaceuticals;• Studying the effectiveness of prescription drug substitutes, such as

lower-cost, therapeutically equivalent medications;• Encouraging and helping to implement disease management programs;• Encouraging the use of evidence-based medicine; and• Considering limits on direct-to-consumer drug advertising.

ACP should work with its members to carry out those reforms of which itis capable.

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GlossaryAMA: American Medical Association.

BOR: Board of Regents—manages the business and affairs of ACP. It is themain policy-making body of the College.

CBO: Congressional Budget Office—a supportive agency of Congress thatprovides nonpartisan analyses needed for economic and budget decisions, aswell as information and estimates required for the Congressional budgetprocess.

CMS: Centers for Medicare & Medicaid Services.

FDA: U.S. Food and Drug Administration.

FD&C Act: Federal Food, Drug, and Cosmetic Act—federal law that, amongother things, strictly regulates the importation of pharmaceuticals.

GAO: Government Accountability Office (formerly the Government AccountingOffice)—an independent and nonpartisan agency that provides Congress andexecutive agencies with studies of programs and expenditures of the federalgovernment. The GAO is commonly known as the investigative arm ofCongress, since it evaluates federal programs, audits federal expenditures, andrecommends ways to make government more effective.

HELP: Senate Health, Education, Labor, and Pensions Committee.

HHS: U.S. Department of Health and Human Services.

Importation: Typically refers to drugs produced abroad and brought into the U.S.

MEDS Act: Medicine Equity and Drug Safety Act of 2000—bill that wouldhave allowed for the importation of FDA-approved pharmaceuticals only if theSecretary of HHS first certified that such importation would not pose additionalhealth risks to the American public and would create significant cost savings.Both the Clinton and Bush administrations determined that HHS could notimplement the importation changes because neither the safety nor the cost-effectiveness of the MEDS Act could be ensured.

MMA: Medicare Modernization Act of 2003.

NABP: National Association of Boards of Pharmacy—professional associationthat represents the state boards of pharmacy in all 50 states, the District ofColumbia, Guam, Puerto Rico, the Virgin Islands, New Zealand, eightCanadian Provinces, two Australian states, and South Africa.

PhRMA: Pharmaceutical Research and Manufacturers of America—representsthe country’s leading pharmaceutical research and biotechnology companies.

Reimportation: Refers to drugs produced in the U.S. and exported for saleabroad, then later returned to the U.S.

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VAWD program: Verified Accredited Wholesale Distributors program—launched by the NABP in 2005 to accredit wholesale drug distributors.Accreditation by the VAWD helps assure stakeholders that wholesaler distrib-utors are legitimate, are qualified for state licensure, and are using security andbest practices for safely distributing prescription drugs.

VIPPS program: NABP’s Verified Internet Pharmacy Practice Sites—a certifi-cation process for Internet pharmacies developed by NABP in 1999. To beVIPPS-certified, a pharmacy must comply with VIPPS criteria, as well as comply with the licensing and inspection requirements of their state and eachstate to which they dispense pharmaceuticals.

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References

1. Statement of Dr. Richard Carmona. Hearing on Drug Importation: The Realities of Safety andSecurity, Committee on Health, Education, Labor, and Pensions, U.S. Senate. 16 February 2005.Accessed at http://help.senate.gov/testimony/t190_tes.html on 19 April 2005.

2. Thaul S, Vogt D. Importation of Prescription Drugs Provisions in P.L.108-173, the MedicarePrescription Drug, Improvement, and Modernization Act of 2003. Congressional Research Service.12 March 2004. Accessed at www.law.umaryland.edu/marshall/crsreports/crsdocuments/RL32271.pdf on 19 April 2005.

3. Report on Prescription Drug Importation, HHS Importation Task Force, U.S. Department ofHealth and Human Services. December 2004. Accessed at www.hhs.gov/importtaskforce/Report1220.pdf on 8 July 2005.

4. Letter from Secretary of the Department of Health and Human Services, Tommy Thompson andSecretary of Commerce Donald Evans to Senate Majority Leader William Frist. 21 December2004. Accessed at www.hhs.gov/importTask Force/Frist.pdf on 19 April 2005.

5. Examination and Assessment of Prescription Drug Importation from Foreign Sources to theUnited States, Giuliani Partners, LLC. April 2005. Accessed at www.phrma.org/publications/pol-icy//admin/2005-04-11.1162.pdf on 19 April 2005.

6. Lannan M. Fewer than 2,000 People Have Used Program to Import Prescriptions. Chicago Sun-Times. 20 December 2004. Accessed at www.suntimes.com/output/health/cst-nws-drug20.htmlon 19 April 2005.

7. Armstrong D. Rhode Island Plans to License Canadian-Based Pharmacies. Wall Street Journal. 3January 2005.

8. Court Halts Illegal Importation of Prescription Drugs. FDA News. 27 December 2004. Accessedat www.fda.gov/bbs/topics/ANSWERS/2004/ANS01337.html on 19 April 2005.

9. Higgins M. HHS Chief Tackles Drug-Imports Issue. Washington Times. 18 March 2005. 10. Finkelstein J. Public Support Fuels Latest Reimportation Push in Congress. AMNews. 21 February

2005. Accessed at www.ama-assn.org/amednews/2005/02/21/gvsb0221.htm on 19 April 2005. 11. Most Americans Don’t Favor Drug Imports from Non-Canadian Countries. The Polling

Company. 9 March 2005. Accessed at www.pollingcompany.com/News.asp?FormMode=ViewReleases&ID=109 on 7 July 2005.

12. Crippen D. Projections of Medicare and Prescription Drug Spending: 2003-2012. CongressionalBudget Office. 7 March 2003. Accessed at www.cbo.gov/showdoc.cfm?index=3304&sequence=0 on19 April 2005.

13. Pattison N, Warren L. 2002 Drug Industry Profits: Hefty Pharmaceutical Company MarginsDwarf Other Industries. Public Citizen Congress Watch. June 2003. Accessed atwww.citizen.org/documents/Pharma_Report.pdf on 20 April 2005.

14. Statement of U.S. Senator Byron L. Dorgan. Hearing on Comparative Pricing of PrescriptionDrugs Sold in the U.S. and Canada and the Effects on U.S. Consumers, Subcommittee onConsumer Affairs, Foreign Commerce and Tourism, U.S. Senate. 5 September 2001. Accessed athttp://commerce.senate.gov/hearings/090501Dorgan.pdf on 19 April 2005.

15. Rich S. FDA Lags on Inspections of Foreign Drug Plants. CongressDaily. 14 December 2004.Accessed at www.govexec.com/dailyfed/1204/121404cdpm1.htm on 20 April 2005.

16. Drug Reimportation Programs Forge Ahead. Employee Benefit News. 1 September 2004. Accessedat www.rxsolutions.com/c/pbi/pbi_view.asp?docid=512 on 19 April 2005.

17. FDA/U.S. Customs Import Blitz Exams Reveal Hundreds of Potentially Dangerous ImportedDrug Shipments. U.S. Food and Drug Administration. 29 September 2003. Accessed atwww.fda.gov/bbs/topics/NEWS/2003/NEW00948.html on 19 April 2005.

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18. Appleby J. Budget Cuts FDA Safety Checks; Calls for Fewer Visits to Inspect Food, Medicine. USAToday. 15 February 2005.

19. Baker C. Would Prescription Drugs Reduce U.S. Drug Spending? Congressional Budget Office.29 April 2004.

20. The Real Truth About Drug Companies. The Pharmaceutical Research and Manufacturers ofAmerica. 2005. Accessed at www.phrma.org/publications/policy/15.09.2004.1078.cfm on 19 April2005.

21. Tuerck D, Barrett J, Giuffre D, et al. The Impact of Drug Reimportation and Price Controls: TheU.S. and Massachusetts. Institute for Policy Innovation. 22 September 2004. Accessed atwww.ipi.org on 20 April 2005.

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